EİS ECZACIBAŞI İLAÇ, SINAİ VE FİNANSAL YATIRIMLAR SANAYİ VE TİCARET A.Ş. ACTIVITY REPORT OF THE BOARD OF DIRECTORS

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1 EİS ECZACIBAŞI İLAÇ, SINAİ VE FİNANSAL YATIRIMLAR SANAYİ VE TİCARET A.Ş. ACTIVITY REPORT OF THE BOARD OF DIRECTORS AS OF 31 ST MARCH 2016

2 EİS Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar Sanayi ve Ticaret A.Ş. ( Company ) was established on 24 th October The Company is not engaged in any actual manufacturing activity and it has a holding structure with its existing Affiliate Companies, Business Partnerships and Subsidiaries. Within this structure, the Company directly carries out real estate development activities and it is active in the industries of healthcare, consumer goods, cosmetics and personal care products through its partnerships. The registered address of the Company is Büyükdere Caddesi, Ali Kaya Sokak No: 5 Levent 34394, Istanbul and the Company is registered with number in Istanbul Trade Registry Office. The website of the Company is and the investor information is included on Period of the report Related to EİS Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar Sanayi ve Ticaret A.Ş. and its affiliate companies, business partnerships and subsidiaries; this report involves the issues indicated in the article 8 of the Communique on Principles Related to Financial Reporting in Capital Market number II-14.1 of the Capital Markets Board, the milestones related to the financial year of 1 st January - 31 st March 2016 and their effects on the financial statements, and the declarations related to significant risks and uncertainties, if any, about these issues for the remaining period of the mentioned financial year. Boards and committees in charge during the period Board of Directors Name-Surname Title F. Bülent Eczacıbaşı Chairman of the Board Non-executive R. Faruk Eczacıbaşı Deputy Chairman of the Board Non-executive M. Sacit Basmacı Member Non-executive Ayşe Deniz Özger Member Executive Şenol S. Alanyurt Independent Member Non-executive Akın Dinçsoy Independent Member Non-executive The Board of Directors was elected to be in charge for one year during the Ordinary General Assembly Meeting dated , and will be in charge until the Ordinary General Assembly Meeting to be held in The Board of Directors is authorized to make decisions on all operations other than the authorizations given exclusively to the General Assembly pursuant to the Articles of Association. There is not any managing director in charge with the Board of Directors. The members of the Board did not take any action against the prohibition of competition within the period of 1 st January - 31 st March The curriculum vitae information of the members of the Board are included on the preamble section of the annual working report and published on Investor Relations section on The statements of independence of the independent members of the Board are included within the Information Document of the General Assembly and also published on the Company s website (on Investor Relations section on As of 31 st March 2016, there is a senior manager having signatory authorization in addition to the members of the Board in our organization. 1

3 Audit Committee Name-Surname Şenol S. Alanyurt Akın Dinçsoy Title President Member Corporate Governance Committee Name-Surname Title Akın Dinçsoy President M. Sacit Basmacı Member Gülnur Günbey Kartal Member Early Risk Detection Committee Name-Surname Akın Dinçsoy Ayşe Deniz Özger Title President Member Assessment of the Board of Directors Related to the Activity of the Committees Established to provide the reliable fulfillment of the duties and the responsibilities by the Board of Directors, the committees were attentive to hold meetings as often as required for the effectiveness of the operations for the issues indicated in their duty and working principles pursuant to the provisions of Capital Market and Turkish Commercial Code. The Board of Directors provided the committees with any resource and support required for the fulfillment of their duties. The committees informed in written or verbally the Board of Directors about all the operations they performed. The information related to the working principles, which also includes the meeting frequency of and the activities carried out by the committees, is included in detail in the article 5.3 of the Section V of the Corporate Governance Compliance Report. Changes made in the senior management during the year and names, surnames and professional experiences of those still being in charge Sedat Birol, the Pharmaceuticals Group President of Eczacıbaşı Group, has been also performing his task as General Manager as of 31 st March He is professional chemical engineer and he has a 29-year management experience in pharmaceuticals and chemical industry. Sedat Birol is also the member of the board in the following companies: Eczacıbaşı İlaç Pazarlama A.Ş. Eczacıbaşı İlaç Ticaret A.Ş. Eczacıbaşı Sağlık Hizmetleri A.Ş. Eczacıbaşı -Baxter Hastane Ürünleri Sanayi ve Ticaret A.Ş. Eczacıbaşı -Baxalta Sağlık Ürünleri Sanayi ve Ticaret A.Ş. Eczacıbaşı -Monrol Nükleer Ürünler Sanayi ve Ticaret A.Ş. Moleküler Görüntüleme Ticaret ve Sanayi A.Ş. Capintec Inc. Monrol Poland LTD Monrol Europe SRL Monrol Bulgaria LTD Monrol Egypt for Manufacturing LLC Eczacıbaşı - Monrol Nuclear Products Industry & Trade Co - Jordan Monrol MENA LTD Monrol Gulf DMCC HSM Consulting LTD Eczacıbaşı Ortak Sağlık ve Güvenlik Birimi A.Ş. Eczacıbaşı Bilişim Sanayi ve Ticaret A.Ş. Our Board of Directors decided discharge Sedat Birol as of 31 st March 2016 from his duties of Healthcare Group President and General Manager of our organization, due to the fact that he was assigned with another task in Eczacıbaşı Group as of 1 st April 2016; and to assign Elif Neşe Çelik with the duty of General Manager as of the mentioned date. Elif Neşe Çelik will continue her ongoing duty as the General Manager of Eczacıbaşı-Baxter Hastane Ürünleri Sanayi ve Ticaret A.Ş. until the end of 2016, and she has been also in charge with the duty of Healthcare Group President as of 1 st April Being a pharmaceutical professional and having a professional experience of 24 years, Elif Neşe Çelik is also the member of the board of Intema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. 2

4 Assigned with the task of Deputy President of Healthcare Group to be responsible with all business development activities of the group under Healthcare Group Presidency between 1 st August 2011 and 31 st January 2015, Ayşe Deniz Özger has been performing her task as the Advisor of Healthcare Group President as of 1 st February Being a pharmaceutical professional and having a professional experience of 34 years, Ayşe Deniz Özger is also the member of the board of Eczacıbaşı Sağlık Hizmetleri A.Ş. and of Eczacıbaşı Ortak Sağlık ve Güvenlik Birimi A.Ş. The Financial Affairs Manager of our organization, Bülent Avcı is the former financial analyst of the Ministry of Finance and is a certified public accountant. Bülent Avcı is also the Chief Auditor of Eczacıbaşı Holding A.Ş. and the member of the board of Eczacıbaşı Sigorta Acenteliği A.Ş. and of Kanyon Yönetim İşletim ve Pazarlama A.Ş. Amendments made in the articles of association during the period and their reasons There was not any amendment in the articles of association of our organization during the period. Partnership structure and changes made in the capital The capital of our organization is TRY 548,208,000 and there was not any change in the capital during the period. Our organization did not acquire its own shares. The issued capital of our organization has been divided into 54,820,800,000 shares, each of 1 kurus nominal value, and all of these shares are bearer shares. There is not any privileged share and privileged voting right in the capital of our organization and the structure of partnership and capital is as follows: Shareholder 31 st March st December 2015 Share Share Share Share Percentage Amount Percentage Amount (%) (TRY) (%) (TRY) Eczacıbaşı Holding A.Ş ,476, ,476,368 Eczacıbaşı Yatırım Holding Ortaklığı A.Ş. (*) ,922, ,864,578 Other (public) (**) ,809, ,867,054 Total ,208, ,208,000 (*) The dates and the amounts of the share acquisitions performed by one of our partners Eczacıbaşı Yatırım Holding Ortaklığı A.Ş. in Istanbul Stock Exchange (BIST) between 1 st January - 31 st March 2016 are as follows: Share Acquisition Date Amount (lot) 24 th February , th February ,828 2 nd March ,000 The dates and the amounts of its share acquisitions in BIST from 31 st March 2016 to the signature date of the report are as follows: Share Acquisition Date Amount (lot) 1 st April ,381 5 th May ,214 6 th May ,143 As a result of these acquisitions, the share percentage of Eczacıbaşı Yatırım Holding Ortaklığı A.Ş. within our organization increased to 28.94%. 3

5 (**) The outstanding share percentages of the companies traded in Istanbul Stock Exchange Market (IMKB), within the scope of the decision number 21/655 dated of Capital Markets Board, are weekly announced to public starting from the period of 31 st March 2010 by Merkezi Kayıt Kuruluşu A.Ş. (MKK - Central Securities Depository) as of 1 st October According to the report published on 31 st March 2016 by MKK, the 20.55% (31 st December 2015: 20.92%) of the Company capital indicated the outstanding share percentage and presented as included within other group. Distributed profit share and its percentage In its meeting on 29 th March 2016, our Board of Directors determined the distributable net profit of the period as of 31 st December 2015 as TRY 62,349,762 on the consolidated financial statements, which were issued pursuant to the Communique on Principles Related to Financial Reporting in Capital Market number II-14.1 of Capital Markets Board ( CMB ) and which was independently audited, and as TRY 100,647,521 in the financial statements issued according to the legal records. Related to the distribution of the share of 2015, the distributable net profit of the period included in the consolidated financial statements was taken as basis for the share distribution of the period in accordance with the regulations of CMB on profit distribution, the article 26 of our Articles of Association and the principles disclosed to public and indicated in the "Profit Distribution Policy" of our company. In addition, it was deemed appropriate to distribute profit from the "retained earnings" in the consolidated financial statements and from the "extraordinary reserves" in the legal financial statements, and it was decided to submit it to the General Assembly. Accordingly, during the Ordinary General Assembly Meeting of 2015 held on 26 th April 2016, the following decisions were made: 1) To distribute cash dividend of TRY 219,283,200 corresponding to the 40% of the issued capital of our organization, 2) Related to the dividend to be distributed; - To cover the amount of TRY 54,820,800, corresponding to 10% of the capital, from the profit of the period, - To cover the balance amount of TRY 164,462,400, corresponding to 30% of the capital, from the retained earnings in the consolidated financial statements and from the extraordinary reserves in the legal financial statements in the following way: TRY Extraordinary Reserves of ,566, Extraordinary Reserves of ,496, Extraordinary Reserves of ,930, Extraordinary Reserves of ,642, Extraordinary Reserves of ,844, Extraordinary Reserves of ,752, Extraordinary Reserves of , Extraordinary Reserves of ,163, ,462, ) To pay dividend of gross 40% in cash to a stock certificate of 1 TRY nominal value, and of the net amount found, after deducting the withholding rates included in the tax laws, to our full taxpayer real person partners and to our limited taxpayer real and legal person partners, 4) To transfer the balance amount, after deducting the legal obligations from the pre-tax period profit of TRY 132,796,514 accrued according to the legal records, to the Extraordinary Reserves, 5) And to start the distribution on 10 th May

6 The profit distribution information of our organization for the last 5 years is as follows: Year Profit Percentage (%) Form (%) Distribution Starting Date Gross Net Cash Share Finance sources of the organization The financial risks of Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar San. ve Tic. A.Ş. are closely monitored by the management of the organization. As of 31 st March 2016, our organization does not have open credit. It is always possible to use credits from various banks where required with the short-term liquidity necessity or with the purpose of investment financing for the upcoming period. In the actual state, our cash assets corresponding a significant part of our net financial assets are managed according to a tripod portfolio concept of Euro, Dollar and Turkish Lira; and the foreign exchange assets are concentrated within this portfolio. Constantly and dynamically changing its foreign exchange balance considering the exchange rates in the market, the organization completed the period of March 2016 with a cash portfolio of 34.4% in Euro, 61.3% in USD and 4.3% in Turkish Lira. Internal Control System and Internal Audit Related to the internal control and internal audit issues, the organization gets support from the Audit Committee formed by the two Independent Members of the Board, from the Internal Audit Department under the General Manager and submitting reports also to the Audit Committee, from the Financial Affairs Presidency and the Strategic Planning and Business Development Presidency within Eczacıbaşı Holding A.Ş., and from the Certified Public Accountancy company of which full confirmation agreement was signed. The legal records of the affiliate companies, the business partnerships and the subsidiaries included within consolidation are quarterly controlled by the Certified Public Accountancy company in accordance with the Turkish Commercial Code, the Uniform Accounting Plan and in terms of tax issues. The Audit Committee within Eczacıbaşı Holding A.Ş. audits the activities of the organizations included within consolidation within the scope of the required processes and/or issues. The Board of Directors considers that these internal control and audit operations performed are sufficient. Related to the monitoring of the receivables risk in the real estate development area in which the Company is active, the Company gets support from Kanyon Yönetim İşletim ve Pazarlama A.Ş. for the customers within Kanyon complex and from Eczacıbaşı Gayrimenkul Geliştirme ve Yatırım A.Ş. for Ormanada Project. The Company does not have any risk as it does not have open credit as of 31 st March 2016 and as its cash assets are quite above the total of its commercial debt level. 5

7 Risk Management In Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar; the risks are accepted as a part of business life and these risks are managed by being balanced according to the risk-return expectations of the organizations. In order to optimize the risks taken and to effectively determine them to manage the sustainable growth; the risks are first defined and classified from the general to the specific, and then the risks are measured and studies are conducted to remove/reduce the risks or to turn them into opportunity. As a result of these studies, the risks continue being monitored and it is always reassessed whether the precautions are taken in time and whether they are effective. During its meeting on 17 th May 2013, in order to comply both with the regulations of Capital Markets Board on Corporate Governance and the article 378 of the Turkish Commercial Code number 6102; our Board of Directors decided to establish the Committee of Early Risk Determination to submit suggestions and recommendations to the Board of Directors for the issues related to the early determination and assessment of any strategic, operational, financial, legal and any other risks to endanger the existence, the development and the continuance of the Company; the calculation of effects and possibilities of these risks; the management of these risks in accordance with the corporate risk taking profile of the Company; reporting of these risks; implementing the required precautions related to the determined risks; taking these precautions into consideration in the decision mechanisms; and creating effective internal control systems accordingly and the integration of them. The Committee is formed by two members and Akın Dinçsoy (independent member) was assigned as its President and Ayşe Deniz Özger (executive member) was assigned as its member. The Committee held two meetings related to the activities of The primary risks incurred by our organization are monitored under two main titles as financial risks (foreign exchange, interest, liquidity and credit) and nonfinancial risks (strategic and operational). Financial Risks The financial risks are the positive or negative influence on the financials of the organization by the dynamism in variables in the markets such as exchange rate, interest or commodity prices. Beside these risks, liquidity risk and credit risk are also other financial risks that may play a role to damage the financial solidity of the organization. The financial risks are analyzed under four titles so as foreign exchange risk, interest risk, liquidity risk and credit risk. Foreign exchange risk These are the risks arising from any financial or operational foreign exchange transaction of the organization. These risks are monitored by being analyzed with foreign exchange position and the required measures are taken following the position analysis. Following the various analyses such as the foreign exchange position of the statement of financial position and the effect by the scenarios of exchange rate change of equity on the financials, hedging operations are performed depending on the risk appetite of the organization. Periodically performed within the determined limits, the hedging operations such as forward, option and swap are shaped according to the willingness of the organization to take risk. In addition, the market expectations are constantly updated in order to make the cash and credit portfolio of the organization be affected from the foreign exchange movements at a minimum level, and the portfolios are dynamically managed depending on the up-to-date data. Interest risk The positive or negative effect on the financials of the Company by the downside or upside movement of interests is described as the interest risk. While the organization first manages this risk by balancing its interest sensitive forward receivables and forward debts, the decision is made to get loans as short, long, fixed or floating interest rate depending on the market expectations of the organization and on its pre-determined risk limits. Liquidity risk The liquidity risk management consists of the capability of providing cash and security of sufficient amount, making funding possible through sufficient credit opportunities and short covering. Due to the dynamic content of the business climate, the organization aimed flexibility in funding by means of holding the credit methods at disposal. The liquidity risk is managed by considering the financial solidity in the regularly issued risk reporting. The financial structure of the organization is analyzed by the indicators such as current ratio, liquidity ratio, total debt/total assets, NFB/equity, capability of the organization to pay interest, etc.; and assessed from the weakest to the strongest; and actions are taken related to the capital management of the organization as a result of the assessment. 6

8 Credit risk These are the risks appearing in case of failure by the business partners, owing to the organization, to pay their debts. These risks are managed with credit rating studies based on historical data, inquiry studies, limiting the concentration on a single business partner within the total portfolio, and assurance structure to be applied for customers. Where necessary, the organization may realize the early collection operations for the receivable by means of irrevocable factoring in order to remove the risk. By conducting detailed customer analysis, it is provided that the local and foreign receivables are ensured within the determined operation limits. Nonfinancial Risks In addition to getting the financial risks under control, the other important risks related to the activities of our organizations are handled as strategic and operational risks. Strategic risks Fluctuations in the demand for the products and the services of the organization, changes in the market shares, risks arising from the developments to affect competition and political risks are all included within the strategic risks. In order to reduce the effects of these risks, diversifications are made in the markets of sale. In addition, it is required maintain the competitive position by maintaining the quality of the products and by including innovation to a considerable extent. The constant analyses are conducted related to the changes of the dynamics in the markets and to the competitors; and the required precautions are taken against the possible risks. Operational risks The operational risks involves personnel risk, technological risks, organizational risk, legal risks and external risks. These risks are reduced with the effective Human Resources Management and the investments in Technological Infrastructure; and the coverable risks are frequently reviewed, covered based on a benefit and cost analysis and transferred to the outside of the organization. Milestones during the period from the closing of the financial year and to the announcement date of the relevant financial statements Due to the fact that the existing capital of TRY 50,000 of Eczacıbaşı Baxalta Sağlık Ürünleri Sanayi ve Ticaret A.Ş., of which 50% share is possessed by our organization, was increased to TRY 67,850,000 with a total cash amount of TRY 67,800,000; - our Board of Directors decided during its meeting on 27 th April 2016 to pay in cash the amount of TRY 21,725,000, of the total balance amount of TRY 25,425,000 corresponding to 75% of the amount to be paid pursuant to its decision dated 27 th January 2016, on 27 th April 2016, - to pay in cash TRY 2,200,000 of it in May; and to pay in cash TRY 1,500,000 of it in June. Our affiliate company EIP Eczacıbaşı İlaç Pazarlama A.Ş. performed a capital increase by bonus issue of TRY 8,500 thousand. Our affiliate company Eczacıbaşı Girişim Pazarlama Tüketim Ürünleri Sanayi ve Ticaret A.Ş. performed a capital increase by bonus issue of TRY 16,070 thousand. During the Ordinary General Assembly Meeting of Eczacıbaşı Holding A.Ş. on 11 th May 2016, it was decided to distribute dividend of TRY 160,000 thousand (of which TRY 59,650 thousand came to us). During the Ordinary General Assembly Meeting of Eczacıbaşı Bilişim Sanayi ve Ticaret A.Ş. on 20 th April 2016, it was decided to distribute dividend of TRY 500 thousand (of which TRY 56 thousand came to us). During the Ordinary General Assembly Meeting of Ekom Eczacıbaşı Dış Ticaret A.Ş. on 29 th April 2016, it was decided to distribute dividend of TRY 3,485 thousand (of which TRY 919 thousand came to us). 7

9 Considering that the issued capital ceiling permission was valid until 2017, our Board of Directors decided during its meeting on 17 th March 2016 to increase the new issued capital ceiling from TRY 548,208,000 (five hundred forty eight million and two hundred eight thousand Turkish Liras) to TRY 1,920,000,000 (one billion and nine hundred twenty million Turkish Liras) so as to be valid for Accordingly, the application made on 21 st March 2016 to the Capital Markets Board for the amendment in the articles of association was approved with the letter number E.3557 dated 25 th March 2016 by the Capital Markets Board, and permission was obtained with the letter number dated 5 th April 2016 by the Ministry of Customs and Trade of the Republic of Turkey. The old and new versions of the amended article in the articles of association are as follows: OLD TEXT ARTICLE 7 - REGISTERED CAPITAL The Company preferred the registered capital system according to the provisions of the Capital Markets Law number 2499, and passed on to this system with the permission number 333 dated by the Capital Markets Board. The registered capital of the Company is TRY 548,208,000 (five hundred forty eight million and two hundred eight thousand) and is divided into 54,820,800,000 shares of each 1 (one) kurus nominal value. The permission given by the Capital Markets Board for the registered capital ceiling is valid for (for 5 years). Even if the permitted registered capital ceiling is not achieved at the end of 2017, it is compulsory for the Board of Directors to get permission from the general assembly for a new period not more than 5 years by means of getting permission from the Capital Markets Board for the ceiling permitted before or for a new ceiling amount, in order to decide on capital increase after Where the mentioned permission is not obtained, it is deemed that the Company has left the registered capital system. The Company s issued capital of TRY 548,208,000 (five hundred forty eight million and two hundred eight thousand) was totally paid in cash free from collusion. The issued capital of the Company is divided into 54,820,800,000 shares of each 1 kurus nominal value and all of these shares are bearer shares. The shares representing the capital are monitored dematerialized within the scope of the dematerialization principles. The capital of the Company can be increased or decreased where required within the scope of the provisions of the Turkish Commercial Code and the Capital Markets Legislation. The Board of Directors is authorized to increase the issued capital where deemed necessary by issuing new shares up to the registered capital ceiling in accordance with the provisions of the Capital Markets Law, and to decide on to limit the rights of the shareholders to obtain new shares and to issue premium share and to issue share under the nominal value. The authorization to limit the rights of obtaining new shares cannot be used in a way to cause inequality among the shareholders. While the nominal value of the stock certificates was TRY 1,000, it was changed as 1 new kurus within the scope of the law related to the amendment in the Turkish Commercial Code number Due to this amendment, the total number of shares was reduced and a share of 1 new kurus will be given in return of 10 shares, each of TRY 1,000. NEW TEXT ARTICLE 7 - REGISTERED CAPITAL The Company preferred the registered capital system according to the provisions of the Capital Markets Law number 2499, and passed on to this system with the permission number 333 dated by the Capital Markets Board. The registered capital of the Company is TRY 1,920,000,000 (one billion and nine hundred twenty million) and is divided into 192,000,000,000 shares of each 1 (one) kurus nominal value. The permission given by the Capital Markets Board for the registered capital ceiling is valid for (for 5 years). Even if the permitted registered capital ceiling is not achieved at the end of 2020, it is compulsory for the Board of Directors to get permission from the general assembly for a new period not more than 5 years by means of getting permission from the Capital Markets Board for the ceiling permitted before or for a new ceiling amount, in order to decide on capital increase after Where the mentioned permission is not obtained, capital increase cannot be performed with the decision of the board of directors. The Company s issued capital of TRY 548,208,000 (five hundred forty eight million and two hundred eight thousand) was totally paid in cash free from collusion. The issued capital of the Company is divided into 54,820,800,000 shares of each 1 kurus nominal value and all of these shares are bearer shares. The shares representing the capital are monitored dematerialized within the scope of the dematerialization principles. The capital of the Company can be increased or decreased where required within the scope of the provisions of the Turkish Commercial Code and the Capital Markets Legislation. The Board of Directors is authorized to increase the issued capital where deemed necessary by issuing new shares up to the registered capital ceiling in accordance with the provisions of the Capital Markets Law, and to decide on to limit the rights of the shareholders to obtain new shares and to issue premium share and to issue share under the nominal value. The authorization to limit the rights of obtaining new shares cannot be used in a way to cause inequality among the shareholders. Quality and amount of the issued capital market instruments Not available. 8

10 Studies of Corporate Governance Compliance As of the issue date of the annexed report, there has not been any significant development within the scope of the studies conducted for the compliance with the "Communique on Corporate Governance number II-17.1" by the Capital Markets Board which was entered into force after being published on the Official Gazette number dated The Corporate Governance Compliance Report is published under the section of Investor Relations on Information related to the donations made during the year As of 31 st March 2016, the consolidated amount is TRY 32 thousand (31 st March 2015: TRY 62 thousand) for the donations made to public benefit associations and foundations, to universities, to healthcare organizations and institutions, to organizations pursuing public service goal in order to promote and support social, scientific, artistic and other activities that are helpful for the country, and to annexed budget provincial private administrations and to similar institutions. Base ratios related to financial position, profitability and debt discharging positions calculated based on the financial statement and information regulated within the scope of the provisions of this Communique Liquidity Ratios 31 st March st December 2015 Current Ratio Liquidity Ratio Ratios Related to Financial Position Total Liabilities / Total Assets Consolidated Equity / Total Assets Consolidated Equity / Total Debts Profitability Ratios Net Profit for the Year / Consolidated Equity Net Profit for the Year / Total Assets Net Profit for the Year / Net Sales Personnel and worker movements, collective contract applications, rights and benefits provided to personnel and workers As there is not any manufacturing activity in our organization, our organization does not have any worker. The total number of personnel as of 31 st March 2016 is 15 (31 st December 2015: 15) and all of them are subject to the Labor Law and the common rights and benefits determined for the employees of Eczacıbaşı Group. The mentioned common applications consist the following rights and benefits: 12-month salary and bonus (16 salaries in total), Sales premium to the sales personnel according to their work results within the scope of the sales premium regulations, Personal accident insurance to employees actively driving, Group s Private Health Insurance and optional Group s Personal Retirement Insurance, 9

11 Clothing and moving allowance, Marriage, birth-death, child allowance, Daily food allowance of TRY 19, Severance encouragement award, Sim card and vehicle according to the quality of the task, Training programs for personal and professional development and career management. Information related to the shares of the organizations, subject to consolidation, in the main partnership (reciprocal shareholding) Our organization possesses 37.28% of the shares in its main shareholder Eczacıbaşı Holding A.Ş., which has 50.62% of the shares in our organization, and our organization does not have any directive effect or control over the organization and management policies of Eczacıbaşı Holding A.Ş. Related to the preparation process of the consolidated financial statements, declarations related to the key elements of the internal audit and risk management systems of the Group Related to the internal control and internal audit issues, the organization gets support from the Audit Committee formed by the two Independent Members of the Board, from the Internal Audit Department under the General Manager and submitting reports also to the Audit Committee, from the Financial Affairs Presidency and the Strategic Planning and Business Development Presidency within Eczacıbaşı Holding A.Ş., and from the Certified Public Accountancy company of which full confirmation agreement was signed. The risk analysis (external) for the fixed assets and the assessment for security, emergency and risky assets position are performed in the meetings of the Board of Directors. The legal records of the affiliate companies, the business partnerships and the subsidiaries included within consolidation are quarterly controlled by the Certified Public Accountancy company in accordance with the Turkish Commercial Code, the Uniform Accounting Plan and in terms of tax issues. The Audit Committee within Eczacıbaşı Holding A.Ş. audits the activities of the organizations included within consolidation within the scope of the required processes and/or issues. In addition, the compliance of the financial statements, dated 30 th June and 31 st December issued for consolidation by the organizations included with consolidation, with the CMB legislations and with the Turkish Accounting Standards, published by the Public Oversight Accounting and Auditing Standards Authority, are made analyzed and audited by the internal audit companies. Issued by these organizations related to the interim period of 31 st March and 30 th September, the financial statements are controlled by the Internal Audit Department within Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar according to the audit principles applied by the independent audit company. Investment and dividend policy applied by the organization in order to strengthen its performance Investment policy After terminating its manufacturing activities, Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar has been performing investment activities with growth purpose in healthcare and real estate development sectors in addition to its current structure. For this purpose, it purchases products or acquires companies being active in these sectors on one hand, and it produces real estate development projects on the other hand. 10

12 Dividend policy Within the scope of the provisions of the Turkish Commercial Code, the Capital Markets Legislation, Tax Legislation, other relevant legislations and the article related to profit distribution in our Articles of Association; our Board of Directors decided during its meeting on 29 th March 2013 to apply a profit distribution policy within the following concept, and this decision was submitted to the approval of the partners and accepted by them during the Ordinary General Assembly Meeting of 2013 held on 15 th April The principle was adopted to distribute dividend as cash and/or bonus share over the distributable profit for the period, calculated within the scope of the Capital Markets Legislation and the other relevant legislations, based on the net profit for the year in the financial statements issued within the scope of the Capital Markets Legislation and made be subject to independent audit. In our Articles of Association, there is not a specific regulation envisaging the application of giving profit share to the employees and the members of the Board of Directors together with preferred stock related to obtaining share from profit, and promoter s dividend share. The profit distribution proposals submitted by our Board of Directors to the approval of our General Assembly are issued by considering the delicate balances between the possible expectations of our shareholders and the envisaged growth strategies of our organization. The attention is paid to make the profit share payments (cash and/or bonus share) within the legal periods and as soon as possible following the General Assembly Meeting so as to be until the end of the period envisaged within the legislation at the latest. This dividend policy is still applied and our Board of Directors has not made any change within this regard. 11

13 Assessment of the activities of 1 st January - 31 st March 2016 period Our organization has a kind of holding structure, and it is active in healthcare and consumption sector and it directly carries out real estate development activities with its affiliate companies, business partnerships and subsidiaries included within this consolidated structure. Accordingly, the descriptions of our organization within this subject are made based on the sectors in which it is active, and the distribution of the companies, active in these sectors, by the markets is as follows: Sector/Market of Activity Healthcare Sector Original and equivalent pharmaceuticals market Hospital products market Biological and biotechnological products market Dialysis treatment market Healthcare services Nuclear medicine sector Consumption Sector Consumer products market Wet towel market Out-of-home consumption market Coiffeur products market Real Estate Activities Real estate development Kanyon Ormanada Project Other Ceramic coating market Exportation services Corporate Name EIP Eczacıbaşı İlaç Pazarlama A.Ş. Eczacıbaşı İlaç Ticaret A.Ş. Eczacıbaşı -Baxter Hastane Ürünleri Sanayi ve Ticaret A.Ş. Eczacıbaşı -Baxalta Sağlık Ürünleri Sanayi ve Ticaret A.Ş. (i) RTS Renal Tedavi Hizmetleri Sanayi ve Ticaret A.Ş. (ii) Eczacıbaşı Sağlık Hizmetleri A.Ş. Eczacıbaşı Ortak Sağlık ve Güvenlik Birimi A.Ş. Eczacıbaşı -Monrol Nükleer Ürünler Ticaret ve Sanayi A.Ş. Moleküler Görüntüleme Ticaret ve Sanayi A.Ş. Monrol Europe SRL Monrol Poland LTD Monrol Egypt for Manufacturing LLC Radiopharma Egypt (S.A.E) Monrol Bulgaria LTD Eczacıbaşı -Monrol Nuclear Products Industry & Trade Co - Jordan Capintec, Inc. Monrol MENA LTD Monrol Gulf DMCC HSM Consulting LTD Eczacıbaşı Girişim Pazarlama Tüketim Ürünleri Sanayi ve Ticaret A.Ş. Eczacıbaşı Hijyen Ürünleri Sanayi ve Ticaret A.Ş. Eczacıbaşı Profesyonel Ürün ve Hizmetler Sanayi ve Ticaret A.Ş. (iii) Eczacıbaşı -Schwarzkopf Kuaför Ürünleri Pazarlama A.Ş. Eczacıbaşı Gayrimenkul Geliştirme ve Yatırım A.Ş. (iv) (v) Vitra Karo Sanayi ve Ticaret A.Ş. Ekom Eczacıbaşı Dış Ticaret A.Ş. (i) It was established on 7th December 2015 and entered into service on 1st February 2016, and 50% of its shares belongs to our organization and 50% of them belongs to Baxalta GmbH. (ii) It was transferred to Baxter Healthcare S.A. in February (iii) It was established on 10th December 2015 as a 100% participation of Eczacıbaşı Girişim Pazarlama Tüketim Ürünleri Sanayi ve Ticaret A.Ş. (iv) It corresponds to the total of Kanyon Office Block and the half of Bazaar Part included within the assets of our organization. (v) In December 2007, our organization purchased the half of 22 lands with a total area of ,74 m 2 in Yorgancı Çiftliği Location, Uskumru Quarter in Sarıyer District; and the details related to Ormanada Project, developed on these lands by our organization in partnership with Eczacıbaşı Holding A.Ş. (50%-50%), are included in the section of Our Real Estate Activities of the report. 12

14 OUR ACTIVITIES IN HEALTHCARE SECTOR

15 The main factors affecting the performance of the organization, the significant changes in the environment where the organization is active and the policies applied by the organization against these changes, and the investment and dividend policy applied by the organization in order to strengthen its performance Related to our affiliate companies being active in the original and equivalent pharmaceuticals market; The main factors affecting their performance, the significant changes in the environment where they are active and the policies applied by them against these changes: The reference price system applied by the Ministry of Health, the Euro Value which is used for the conversion of TRY and of which calculation method was explained by the Cabinet Decree, and the global budget execution managed by the Social Security Institution, The registration process of the Ministry of Health, The condition of GMP ( Good Manufacturing Practices ) for the imported products within registration process and the extension of the process accordingly, The entry speed of the registered products in the reimbursement lists of the Social Security Institution ( SSI ), The compulsory public institutions discounts of SSI. As a precaution to the negative affects of all of these, the organization includes the free priced products, for which permission can be obtained fast such as cosmetic products, medical devices and food supplements, in its portfolio. The investment and dividend policy applied by them in order to strengthen their performance: The organizations which are active in this sector do not have any manufacturing activity other than contract manufacturing and they have only marketing and sales activities. As a result, they adopt the policy of distributing the total of the distributable profit as a principle. Related to our affiliate companies being active in the healthcare services sector; The main factors affecting their performance, the significant changes in the environment where they are active and the policies applied by them against these changes: The main factors affecting the performance of Eczacıbaşı Sağlık Hizmetleri are as follows: The changes in macro indicators in economy (Related to the drug companies that is an important customer segment in the service area of Disease Management, the problems encountered both in finding new customer and in enlarging the projects conducted with the existing customers, and the problem of some patients receiving service at home to get support from unqualified healthcare personnel with less cost particularly during the financial crisis periods), The problems encountered in recruiting nurses who form the biggest section among the employees. The investment and dividend policy applied by them in order to strengthen their performance: In order to reduce the problems encountered and to increase the performance, Eczacıbaşı Sağlık Hizmetleri continues with its studies to reduce its costs by working more efficiently. Eczacıbaşı Sağlık Hizmetleri is a service organization having only sales and marketing activities and does not have any manufacturing activity. Related to our business partners being active in the nuclear medicine sector; The main factors affecting their performance, the significant changes in the environment where they are active and the policies applied by them against these changes: The performance of Eczacıbaşı-Monrol Nükleer Ürünler depends on the development of the local and the foreign markets and on the healthcare policies applied. The public payment terms are an important factor at home, and both the inclusion of the products in reimbursement and the terms of reimbursement directly affect the performance of the organization. As the organization creates a consumption market around it to use its manufacture, it creates directly and indirectly employment and added value. 13

16 The investment and dividend policy applied by them in order to strengthen their performance: In order to strengthen its performance, Eczacıbaşı-Monrol Nükleer Ürünler is engaged in activities to present its products and to increase their usage. For this reason, it makes investments with the purpose to expand geographically and it presents service projects at home/on abroad. In addition, it carries our R&D activities to develop its product portfolio and it launches its developed products to the market. In order to increase the effectiveness of its R&D activities and in accordance with its objective to continue its precedence with new products/technologies both at home and on abroad; - On 29 th July 2011, it acquired 99.99% of the shares of Moleküler Görüntüleme Ticaret ve Sanayi A.Ş. established in Gebze Technology Development Free Zone, - On 11 th December 2012, it acquired the total shares of Capintec, Inc. which is situated in Delaware State of the United States of America and which is a worldwide known company with its manufacturing and service of ergometers in the nuclear medicine sector in which it is active. Moleküler Görüntüleme was established in 2002 in Gebze TUBİTAK (Scientific and Technological Research Council of Turkey) Technology Free Zone in order to develop new chemicals and radiopharmaceuticals and to design tools to protect from radiation by means of conducting R&D studies in nuclear medicine and molecular imaging areas. As it operates in the Technology Free Zone, the application changes by the relevant authorities affect also the performance of the company. With its studies conducted, the organization aims to develop new products, raw materials and application tools of advanced technology both for itself and for other companies being active in nuclear medicine, hospitals, private healthcare centers and foreign markets; and it creates knowledge, added value and employment of personnel with high technology knowledge in the sector. In order to strengthen its performance, Moleküler Görüntüleme carries out informative activities for its products being developed and it makes investments in accordance with its R&D projects. Finance sources and risk management policies of the organization Original and equivalent pharmaceuticals market: The finance source of the organizations being active in this sector is the collection from drug sales as their main field of activity, and the risk factor for them is importing over high exchange rate when there is increase in exchange rate and selling over the fixed price rate determined by the Ministry of Health. Filed by the unions, being active in the pharmaceuticals sector, related to the update of the Euro rate used in the calculation of the drug prices; the case was won against the relevant organizations and the institutions; and as a result of the mentioned case, the exchange rate of was updated and validated as 2.00 as of 1 st June Pursuant to the Decision on Human Medicine Pricing of 1 st July 2015, the value for 1 (one) Euro in Turkish Lira to be used for the pricing of human medicine is determined by being multiplied with the adaptation coefficient determined as 70% of the annual average Euro value to be calculated based on the realizations of the daily selling rate of exchange of Euro of the Central Bank of the Republic of Turkey that is of indicator quality published on the Official Gazette of the previous year. The Price Evaluation Commission hold meeting during the first 5 business days of each year, announces the value of 1 (one) Euro to be used for the pricing of human medicine products within the scope of the above-mentioned procedures, and the value enters into force 45 days after the publication. Pursuant to the provisional clause of the mentioned Decision and as a result of the multiplication of the average selling rate of exchange of Euro, of the period of 90 days before the publication date of the Decision, with 70%, the new Euro value was determined as so as to be valid as of 4 th September Pursuant to the Decision, the Euro value to be used in 2016 was determined as TRY for 1 Euro Value so as to be valid as of 22 nd February

17 Hospital products market: Eczacıbaşı-Baxter Hastane Ürünleri paid off the short-term loans based on TRY, used during 2015, during the first quarter of 2016, it has used daily bank loans within the period and its loan balance is TRY 252 thousand at the end of the period. The receivables, the payments and the stock levels are very carefully monitored against the risk of the problems encountered in the market conditions to affect the activity monetary. In order to minimize the effect of the negative market conditions on the organization, the budgeted expenses were reviewed and additional savings measures were determined. The storage structure, which posed operational and financial risks, was simplified in 2014, the total number of customers was reduced and the distribution infrastructure was formed with a stronger structure in terms of operation and finance. With the new collection methods and insurances, the improvements were made in terms of the collection of the receivables in time. Healthcare services sector: The main finance source of Eczacıbaşı Sağlık Hizmetleri is the collection of the services provided to the patients and the drug companies. In order to reduce the collection risk, it is tried to collect the price of the provided service in cash as far as possible. The organization has revolving credit of TRY 5,224 thousand as of the end of the March As the organization does not have any debt in foreign exchange, it is not subject to any exchange rate risk. Nuclear medicine sector: The finance sources of Eczacıbaşı-Monrol Nükleer Ürünler are its capital, the investments received and the working capital loan. The organization provides direct products and service with its dealer network at home and with its dealers on abroad. The dealer risks are managed with contracts and assurances of certain amounts are received additionally. The feasibility analyses and the investment performance monitoring are regularly performed for the risks related to the investments. The finance sources of Moleküler Görüntüleme are its capital, the project supports received and its loans. The company s completed and ongoing projects are mainly financed by the investment loans/grants provided by KOSGEB (Small and Medium Industry Development Organization), TUBİTAK, the Ministry of Commerce and TTGV (Technology Development Foundation of Turkey). Other issues not included in the financial statements but to be useful for the users Original and equivalent pharmaceuticals markets: In addition to the precautions taken and being applied by the relevant Ministry and the institutions in order to reduce the health expenses; other precautions, which affected the development of the sector in a very negative way, have been also taken since These precautions are as follows in chronological order: The external reference pricing system applied since 2004 was changed with the Decisions Related to the Amendment in the Decision Related to Human Medicine Pricing published on 30 th June 2007, 3 rd December 2009 and 10 th November 2011 (the sales price for the original drugs having generics and for the generic drugs to the storehouses is 60% of the registered reference price; and the sales price for the original drugs of 20 years and for the generic drugs of 20 years to the storehouses is 80% of the registered reference price). The discount ratios to be applied for the drugs, of which price is to be paid by the Social Security Institution, are declared on the Communique on Health Practices ( CHP ). The discount ratios of 4% (the original drugs below 6 years of age) and 11% (original drugs and generic drugs over 6 years of age) on 10 th December 2004 were changed with the CHP amendments dated 29 th September 2008, 4 th December 2009, 11 th December 2010, 5 th November 2011, 24 th March 2013 and 5 th August Pursuant to the CHP amendment dated 4 th December 2009, the discount ratio of 12% started to be applied in addition to the base discount on the drugs, determined as of 20 years old and not having reference price, and on the original drugs not having generic drugs all of which sales price to the storehouse was more than TRY 6,79. Pursuant to the CHP amendment dated 11 th December 2010, an increase of 9.5% was made on the existing discounts of all drugs, generics and original drugs over 20 years of age all of which sales price to the storehouse was more than TRY